Tags: EU | France | Airbus | Military | Plane

Airbus Considering Dropping A400M Military Plane

Tuesday, 05 Jan 2010 09:38 AM

Airbus on Tuesday increased pressure on European governments to give it more money for the troubled A400M military transport plane, saying it is considering scrapping the project just weeks after its maiden flight.

The plane is running at least three years late and over budget.

The seven customer governments agreed to re-negotiate the original contract, which Airbus CEO Tom Enders has slammed for being badly drawn up and making the planemaker shoulder too much of the cost overruns.

EADS, Airbus' parent, hopes governments will either pay more for the planes or reduce the number of planes on order. Other options include reducing the specifications, or spreading increased payments out over time.

Negotiations have so far failed to find a compromise — notably over EADS' demand for more money.

Airbus spokesman Stefan Schaffrath said that ending the program "is a scenario" if the military plane project "continues to contribute to a loss."

"We are suffering from a stagnation, he said. "The loss-making is serious. This needs to be urgently resolved."

He urged the governments involved in the program to reach a decision on whether to continue financing it by the end of this month.

Engineers working on the project could be better deployed on Airbus' A350 or A380 airliner programs, he said.

The A400M had its maiden flight last month in Spain — with first delivery scheduled in three years.

The program was launched six years ago with an order for 180 planes from seven governments — Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey. The original price was euro20 billion ($29.5 billion), but a preliminary report by auditors PricewaterhouseCoopers said parent company EADS might need an extra euro5 billion — inflating the final bill by 25 percent.

Abandoning the project would cost EADS euro5.7 billion ($8.4 billion) in advance payments it would have to return to governments — and would dent its credibility. It has already put aside euro2.4 billion in provisions against losses related to the plane.

South Africa recently pulled out of an order for eight A400Ms, leaving Malaysia as the only export customer.

A German defense ministry spokesman, speaking on customary condition of anonymity, said that the decision on the A400 was due by the end of January. A meeting of high ranking defense officials is tentatively scheduled for next week, he said.

For governments, canceling the project would also have consequences in terms of jobs and also military needs.

Britain and France — who have Europe's largest air forces — need the airlift capacity for military and humanitarian missions in rugged areas.

There are other planes, such as the U.S.-built Lockheed Martin C-130J Hercules and the Boeing C-17 Globemaster III. But neither fulfills the requirements set out by European air staffs. The C-130J turboprop carries only half the payload of the A400M, and the much more expensive C-17 jet is considered too large and lacks the tactical versatility of the Airbus design.

While waiting for the A400M, Britain's Royal Air Force acquired six C-17s and has flown them out of its air base at Brize Norton in central England in support of troops in Iraq and Afghanistan.

They have also been used for humanitarian purposes after tsunamis in Southeast Asia and earthquakes in Pakistan.

Last month Boeing said the RAF would acquire a seventh C-17.

Defense ministers from the seven countries agreed in July to re-negotiate the contract after EADS missed a March 31 contract deadline for the first flight.

Sandy Morris, an analyst with Royal Bank of Scotland, said uncertainty on the outcome was weighing on EADS' the share price. On Tuesday, EADS shares were trading down 1.2 percent at euro13.82.

"Does EADS want clarity on this? Absolutely because the A400M is dominating sentiment toward a the company," he said.

The company reports its full year results on March 10.

Union leaders expressed concern about possible job losses if the project ends — a possibility they say has already been raised by Airbus CEO Tom Enders.

"Mr. Enders told me himself that he seriously considers backing out of the A400M," said Bernhard Stiedl, a spokesman for Germany's powerful IG Metall union. "He said the project cannot be realized cost-effectively and is therefore not profitable for Airbus," Steidl said.

Enders has said that he would prefer to end the project than let it continue hurting the company.

"Better an end with horror than a horror without end," he was quoted as saying in German media last year.

——

Associated Press Writers Angela Charlton in Paris, Kirsten Grieshaber and David Rising in Berlin, and Slobodan Lekic in Brussels contributed to this report.

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Airbus on Tuesday increased pressure on European governments to give it more money for the troubled A400M military transport plane, saying it is considering scrapping the project just weeks after its maiden flight.The plane is running at least three years late and over...
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